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Should Online Retailers Charge Sales Tax?

With the Christmas season in full swing, many online retailers were on the edge of their seats waiting to see how the Supreme Court would handle the states’ efforts to force them to collect sales tax. Currently many online retailers do not charge any sales tax to the majority of their customers. In many instances these retailers do not have a physical presence in most states which previously was the bright-line test that would require the charging and remitting of sales tax. However, this has not stopped the states from working to extend their reach to these retailers.

Unfortunately (or fortunately depending on how you look at it), on December 2nd, aka Cyber Monday, one of the busiest online shopping days of the year, the Supreme Court declined to get involved. Jonathan Johnson, Overstock’s Executive Vice President, was disappointed by this decision stating his company has, “no obligation to be the tax collector for the state of New York.”

The issue was brought to the Supreme Court by Amazon and Overstock when they petitioned for the Court to review a decision made by the New York Court of Appeals that said Amazon’s relationship with third-party affiliates in New York, that receive commissions for sending Web traffic to Amazon’s site, satisfied the “substantial nexus” necessary to force them to collect sales tax.

The Court of Appeals said that the “physical presence” test, first set forth more than 20 years ago by Quill v. North Dakota, may be outdated due to the revolution in online shopping.

Currently the United States Senate has passed a bill titled the Marketplace Fairness Act of 2013 which would require companies with $1 million or more in Internet sales outside the states where they are located to collect every state’s sales tax. The bill has yet to pass in the House of Representatives.